PCLN and CTRP – How Priceline Will Take Over China

by Jeff Reeves | August 7, 2014 12:59 pm

Priceline (PCLN[1]) is one of those mega-momentum stocks that just won’t quit.

[2]In the past five years, PCLN stock is up an amazing 880%, and that outperformance has slowed only slightly as Priceline stock has put up 39% returns in the past 12 months vs. a gain of just 13% for the S&P 500 in the same period.

But the dominance of Priceline in Western travel markets and a resurgence in consumer spending and business traveling are all old news.

For PCLN to push higher, it’s going to have to enter new markets — and that’s just what Priceline has done with its recent investment of $500 million[3] in Chinese travel portal Ctrip.com (CTRP[4]).

Here’s what the news means for PCLN stock investors:

Priceline Goes Global

A big trend for all Internet travel stocks in recent years has been the push overseas. Priceline, Expedia (EXPE[5]), Orbitz (OWW[6]) … all of these ventures have relied heavily on international growth — particularly in Europe.

Priceline in particular had been flying high thanks to the acquisition of Amsterdam-based Booking.com in 2005. The company saw continued growth even across the European debt crisis and kept beating earnings forecasts over the past few years.

But Europe is the past — Asia is the future. And that makes the timing perfect for Priceline to take a 10% stake in Ctrip.com.

Most importantly, the initial stake has some speculating about an outright buyout of CTRP by PCLN in the years ahead. After all, Priceline boasts about $6.7 billion in cash and investments — nearly enough to buy Ctrip outright; even after today’s 10% pop in CTRP stock, the company is valued at just about $9 billion.

PCLN Stock Is a Buy

This Chinese growth potential is a big reason to be bullish on PCLN stock.

But another hard-to-believe reason to like Priceline stock is that despite going like gangbusters over the past few years, PCLN’s forward price-to-earnings ratio is pretty reasonable at about 20.

Considering some sleepy consumer staples stocks are sitting on forward P/E’s of 17 right now, that’s a very good sign for those worried about overpaying for Priceline.

Bigger-picture, Priceline has long been committed to buybacks and continues to share its cash with shareholders via ambitious repurchase plans. In mid-2013, the company announced a plan to repurchase $450 million[7] in PCLN stock.

Beyond that, sentiment tends to rule the roost on Wall Street these days … and you’d be hard pressed to find someone who thinks Priceline is a bad company with bad things in store for it anytime soon.

I say buy PCLN with confidence after this CTRP deal.

Jeff Reeves[8] is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks[9]. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com[10] or follow him on Twitter via @JeffReevesIP[11]. 

Source URL: https://investorplace.com/2014/08/pcln-ctrp-priceline-china-ctrip/

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